British Gas has announced a surprise 10% electricity price cut, making it the cheapest supplier in the market.
The cut, which takes effect immediately, follows a 10% cut to gas bills in February. Experts say the move could herald a second round of energy price reductions by the six biggest suppliers.
So far this year, all six have announced cuts to gas or electricity prices, with just Scottish and Southern Energy and ScottishPower reducing both.
Last year, British Gas increased gas bills by a total of 50% and electricity bills by 24%. With an estimated 16 million customers, British Gas is the largest energy supplier in the UK, serving around one in every four homes.
The latest price cut will affect 4.5 million customers. Together with February’s 10% gas bill cut, customers should save an average of £132 on their annual dual fuel bill.
All British Gas electricity customers on standard tariffs - including those with pre-payment meters - will benefit from the price cut.
Phil Bentley, managing director of British Gas, says: "British Gas is offering existing and new customers the cheapest electricity rates in the marketplace. We want to do what we can, when we can, for our customers.”
Alongside cutting electricity bills, British Gas has tweaked its online tariff, Websaver 3. This deal promises to track at least 6% below the standard tariff until 1 August 2010.
Outlook for energy prices
Five months of falling wholesale electricity prices have helped pave the way for British Gas’ cut. Gareth Kloet, head of energy at Confused.com, says the reduction is a welcome surprise for its 4.5 million electricity customers.
However, the vast majority of British Gas’ customer base are on gas tariffs only – Kloet recommends they also look to move their electricity over to the supplier in light of the lastest cut.
“British Gas is now the cheapest supplier for standard electricity tariffs, dual fuel tariffs and online tariffs,” says Kloet. “But it is not the cheapest for gas – despite the fact that most of its customers are on gas tariffs only.”
It now seems likely that British Gas’ five major competitors will have to react by cutting their prices too. EON and ScottishPower have been leading the way in terms of fixed-rate prices recently, and may have to reduce bills if they want to continue in this vein.
Scott Byrom, utilities manager at moneysupermarket.com, says: "This latest move may spark further reductions from the rest of the ‘big six'."
However, Robert Hammond, energy expert for Consumer Focus, warns British Gas' "disappointing" 10% cut is likely to set the tone.
"We would have expected much bigger reductions considering that wholesale gas and electricity prices are half what they were at their peak last year," he adds. "This again raises the question of whether wholesale price cuts are being fairly passed on to consumers."
Hammond calls for the regulator Ofgem to investigate the market to ensure customers are getting a fair deal.
The size of cuts will partly depend on at what point each supplier bought their wholesale energy supplies. If they stocked up last year when energy prices were significantly higher than they are now, they will have to weigh up the pros and cons of remaining competitive with taking a hit on margins.